This article is from Wintermute
Compiled by Odaily (@OdailyChina); Translated by Azuma (@azuma_eth)
Editor's Note: On January 13th, Wintermute released its 2025 analysis report on the cryptocurrency OTC market. As the industry's leading market maker, Wintermute is undoubtedly extremely sensitive to market liquidity trends. In this 28-page report, the organization reviews the changes in cryptocurrency market liquidity in 2025 and concludes that the market is shifting from clear, narrative-driven cyclical fluctuations to a more structurally constrained, execution-driven mechanism. Based on this conclusion, Wintermute also presupposes three key scenarios required for the market to achieve a recovery in 2026.
The following is the original Wintermute report, compiled and edited by Odaily (with some omissions).
Report Summary
2025 marks a fundamental shift in the liquidity mechanism of the cryptocurrency market. Capital is no longer widely dispersed across the market; liquidity has become more concentrated and unevenly distributed, leading to a greater divergence between returns and market activity. Consequently, a large amount of trading volume is confined to a few tokens. Price rallies are shorter-lasting, and price performance is more dependent on the channels and methods by which liquidity enters the market compared to previous years.
The following report summarizes the key changes in liquidity and trading dynamics observed by Wintermute in 2025:
Trading activity is concentrated on a few large tokens. BTC, ETH, and a select few altcoins account for the majority of trading activity. This reflects the gradual expansion of ETFs and Digital Asset Treasury (DAT) products into a wider range of altcoins, and the decline of the Meme coin cycle at the beginning of 2025.
Narrative convictions are fading at an accelerated pace, and altcoin rally exhaustion is doubling in speed. Investors no longer follow narratives with sustained conviction, but instead engage in opportunistic trading on themes such as Meme coin launch platforms, perpetual contract exchanges, emerging payment and API infrastructure (such as x402), with limited follow-through.
Trade execution is becoming more cautious as the influence of professional counterparties increases. This manifests in more prudent cyclical trade execution (breaking the previous four-year fixed cycle), wider use of leveraged OTC products, and diversified applications of options as a core asset allocation tool.
The way capital enters the crypto market is as important as the overall liquidity environment. Capital is increasingly flowing in through structured channels such as ETFs and DAT, influencing the flow and final concentration areas of liquidity in the market.
This report primarily uses proprietary OTC data from Wintermute to interpret these market developments. As one of the industry's largest OTC platforms, Wintermute provides liquidity services across regions, products, and diverse counterparties, offering a unique and comprehensive off-chain crypto OTC perspective. Price movements reflect market outcomes, while OTC activity reveals how risk is deployed, how participant behavior evolves, and which parts of the market remain consistently active. From this perspective, the market structure and liquidity dynamics in 2025 have significantly changed compared to earlier cycles.
Part 1: Spot Trading
Wintermute OTC trading data shows that trading activity in 2025 shifted from being purely volume-driven to a more mature and strategic trading environment. While trading volume continued to grow, trade execution became more planned, with OTC trading increasingly favored for its large-scale trading capabilities, privacy, and controllability.
Market position deployment also moved from simple directional trading to more customized execution plans and wider use of derivatives and structured products. This indicates that market participants are becoming more experienced and disciplined.
In Wintermute's spot OTC trading activity, these structural shifts are primarily reflected in the following three aspects:
Trading Volume Growth: Continued growth in OTC trading volume highlights the market's persistent demand for off-chain liquidity and efficient execution of large-scale trades (while limiting market impact).
Counterparties Growth: The scope of participants further expanded, driven by factors including venture capital funds shifting from purely private allocations to liquidity markets; enterprises and institutions executing large-scale trades through OTC channels; and individual investors seeking alternatives to traditional venues beyond centralized and decentralized exchanges.
Token Landscape: Overall token activity has surpassed BTC and ETH, with funds flowing into a wider range of altcoins via DAT and ETFs. Nevertheless, year-to-date positioning data shows that after the major sell-off on October 11, 2025, both institutional and retail investors shifted back to major tokens. Shorter and more selective altcoin rallies reflect the waning of the Meme coin cycle and an overall contraction in market breadth as liquidity and risk capital become more selective.
Next, Windtermute will provide further detailed analysis of these three aspects.
Trading Volume Growth: Cyclical Patterns Replaced by Short-Term Volatility
"The market in 2025 was characterized by volatile price movements, primarily driven by short-term trends rather than longer-term seasonal variations."
Wintermute OTC trading data shows that trading activity in 2025 exhibited a significantly different seasonal pattern compared to previous years. Market optimism regarding the new pro-cryptocurrency US government quickly faded, and risk sentiment deteriorated sharply at the end of the first quarter as the Meme coin and AI Agent narratives cooled. On April 2, 2025, Trump's announcement of additional tariffs and other top-down negative news further pressured the market.
Therefore, market activity in 2025 was concentrated in the first half of the year, with a strong start to the year.The year-end rallies of 2023 and 2024, which weakened across the board in the spring and early summer, failed to repeat themselves, breaking the seemingly established seasonal pattern—a pattern often reinforced by narratives like the "October rally." In reality, this was never a true seasonal pattern, but rather a year-end rally driven by specific catalysts, such as the ETF approvals in 2023 and the inauguration of the new US administration in 2024.
Entering the first quarter of 2025, the upward momentum of the fourth quarter of 2024 failed to fully recover. Market volatility intensified, and as macroeconomic factors dominated market direction, price movements became more of short-term fluctuations than sustained trends.
In short, fund flows became passive and intermittent, with pulses of volatility around macroeconomic headlines, but no sustained momentum was observed. In this volatile environment, with thinning market liquidity and increasing importance for execution certainty, over-the-counter trading remained the preferred execution method.
Counterparties: Institutional Footprint Deepens
"Despite a lackluster price performance in 2025, institutional counterparties have firmly established themselves."
Wintermute observed strong growth across most counterparty types, with institutional and retail brokers showing the largest increases. Within the institutional category, while growth for traditional financial institutions and corporations remained modest, their participation deepened significantly – activity became more consistent and increasingly focused on prudent execution strategies.
Despite a lackluster market performance in 2025, institutions have clearly established themselves. Compared to the more tentative and fragmented participation of last year, 2025 was characterized by deeper consolidation, larger trading volumes, and more frequent activity. These provide constructive and positive signals for the industry's long-term future.
Token Landscape: Increasing Diversification in the Top Markets
"Trading volume is increasingly flowing to large tokens beyond BTC and ETH, a trend driven by DAT and ETFs."
The total number of tokens traded remained relatively stable overall in 2025. However, looking at 30-day rolling data, Wintertermute traded an average of 160 different tokens, up from 133 in 2024. This indicates that OTC trading activity has expanded to a broader and more stable range of tokens.
A key difference from 2024 is that the hype cycle driving token activity weakened in 2025—the range of traded tokens remained relatively stable throughout the year, rather than experiencing a sharp leap in token breadth around a specific theme or narrative.
Since 2023, Wintertermute's total notional trading volume has become increasingly diversified, and the trading volume of other segments has surpassed the combined trading volume of BTC and ETH. While BTC and ETH remain a significant part of the trading flow, their share of total trading volume has decreased from 54% in 2023 to 49% in 2025.
It's worth noting where these funds are flowing—while the share of long-tail tokens in trading volume continues to decline, blue-chip assets (the top 10 assets by market capitalization, excluding BTC, ETH, wrapped assets, and stablecoins) have increased their share of total nominal trading volume by 8 percentage points over the past two years.
Although some funds and individuals have concentrated their investments in large-cap tokens this year, the growth in trading volume is also attributed to ETFs and DATs expanding their investment scope beyond mainstream assets. DATs have gained authorization to invest in these assets, while ETFs are also expanding their investment scope, including launching staked ETFs (such as SOL) and index funds.
These investment vehicles continue to favor over-the-counter (OTC) trading over exchange trading, especially when the required liquidity is not available on exchanges.
Analysis of Spot Fund Flows for Various Token Types
Major Coins: Funds Gradually Return at Year-End
"By the end of 2025, both institutional and retail investors were reallocating back to major coins, indicating their expectation that major coins would rebound before altcoins recovered."
As the altcoin narrative faded and macroeconomic uncertainties re-emerged at the beginning of 2025, fund allocation returned to BTC and ETH. Wintermute's OTC flow data shows that since Q2 2025, institutional investors have consistently maintained an overweight position in major coins; however, retail investors shifted to altcoins in Q2 and Q3 2025, hoping for a market rebound, but quickly returned to major coins after the deleveraging event on October 11th.
This trend of funds shifting to major coins was driven by market fatigue, as the "altcoin season" failed to truly begin, leading to a gradual decline in market confidence. This trend was initially led by institutions (who have long been net buyers of mainstream cryptocurrencies), but by the end of the year, retail investors had also become net buyers.
This positioning aligns with the prevailing market view: BTC (and ETH) need to lead the market before risk appetite returns to altcoins. Retail investors now seem to increasingly agree with this stance.
Altcoins: Shorter-Lived Rally
"In 2025, the average duration of altcoin narrative-driven rallies was approximately 19 days, a significant decrease from the previous year's 61 days, indicating a degree of market fatigue after last year's excessive gains."
In 2025, altcoins as a whole performed significantly poorly, with a substantial decline in overall annual returns, failing to achieve any meaningful sustained recovery beyond brief rebounds. While individual themes attracted attention periodically, these themes consistently failed to accumulate momentum or translate into broader market participation. From a fund flow perspective, this is not due to a lack of narrative, but rather to clear signs of market exhaustion—rallies repeatedly tested but quickly fading due to a lack of sustained conviction.
To understand this dynamic, we go beyond the surface of prices.Focusing on sustainability analysis, "sustainability" here is defined as the duration for which altcoin participation in OTC trading flows remains above recent normal levels. In practice, sustainability metrics are used to measure whether a price surge can attract sustained participation or whether market activity quickly dissipates after initial volatility. This perspective allows us to distinguish between sustained altcoin price surges and intermittent, rotating bursts that fail to evolve into a broad trend.
The chart above illustrates a clear shift in altcoin price rallies. Between 2022 and 2024, altcoin price surges typically lasted approximately 45 to 60 days. 2024 was a strong year for Bitcoin, driving a wealth effect that rotated to altcoins and maintaining the popularity of narratives such as Memecoin and AI. In 2025, despite the emergence of new narratives including the Memecoin launch platform, Perp DEX, and the x402 concept, the median sustainability plummeted to approximately 20 days.
While these narratives could trigger brief market activity, they failed to develop into a sustained, market-wide rally. This reflects the volatility of the macro environment, market fatigue following last year's excessive gains, and insufficient liquidity in altcoins to support the initial stages of the narrative's breakthrough. Consequently, altcoin price movements resembled tactical trading rather than high-conviction trending.
Meme Coin: Narrowing Activity Range
"Meme Coin failed to recover after peaking in Q1 2025, unable to regain support due to decentralized and narrowing trading."
Meme Coin entered 2025 with one of the most crowded market conditions, characterized by a rapid issuance pace, persistently bullish market sentiment, and price movements that reinforced the narrative. However, this state abruptly ended. Unlike other sectors with higher beta coefficients, Meme Coin turned downwards earlier and more decisively, and consistently failed to rebuild upward momentum.
While prices significantly retreated, the absolute amount of Meme Coin traded over-the-counter remained at a healthy level at any given time. Even by the end of 2025, the number of monthly traded tokens remained above 20, indicating that trading interest had not disappeared. The change lay in the way activity manifested. In practice, this meant a significant reduction in the number of tokens involved by counterparties each month, with activity concentrated on specific tokens rather than broadly trading across the entire Memecoin space.
Part 2: Derivatives
Wintermute's OTC derivatives data showed strong growth. Due to increased market volatility and larger transactions, OTC became the preferred venue for executing complex, capital-efficient structures, offering price certainty and operational privacy.
Contracts for Difference (CFDs): Expanded Range of Underlying Assets
"In 2025, the underlying assets of CFDs further expanded, with futures gaining increasing popularity as a capital-efficient way to gain market exposure."
The number of tokens used as underlying assets for CFDs on the Wintermute OTC platform more than doubled year-over-year, from 15 in Q4 2024 to 46 in Q4 2025. This continued growth reflects the market's increasing acceptance of CFDs as a capital-efficient way to access a broader range of assets, including long-tail tokens.
The growing demand for CFDs reflects a broader market shift towards capital-efficient exposure through futures. Perpetual contract open interest rose from $120 billion at the beginning of the year to $245 billion in October, followed by a significant decline in market risk appetite during the October 11 liquidation event.
Options: Increasing Strategy Complexity
"The options market is rapidly maturing as systematic strategies and yield generation become the primary drivers of trading volume growth."
Building on previous CFD and futures activity, Windemute OTC data shows that counterparties are increasingly turning to options to build more customized and complex crypto asset exposures.
This shift has driven a dramatic increase in options market activity: from Q4 2024 to Q4 2025, both notional trading volume and number of trades increased by approximately 2.5 times year-over-year. This is primarily due to more counterparties—especially crypto funds and digital asset treasuries—adopting options strategies to generate passive returns.
The chart below tracks the changes in quarterly OTC options activity relative to Q1 2025, clearly showing the growth trend throughout 2025. By Q4, notional trading volume reached 3.8 times that of Q1, and the number of trades increased 2.1 times, highlighting the continued growth in both the size and frequency of individual trades.
Part of the growth in notional trading volume stems from the rise of systematic options strategies, which involve holding exposure continuously and rolling over positions over time. This marks a significant shift compared to previous years—where options were previously used more to express purely directional views.
To understand the evolution of options fund flows, we further examined BTC (which still accounted for a large proportion of notional trading volume in 2025). The chart below shows the quarterly distribution of long and short call/put options.
The composition of BTC options fund flows in 2025 reflects a clear shift: from a focus on buying call options for upward movement to a more balanced use of call and put options, with activity increasingly centered on profit generation and structured, repeatable strategies. Profit-generating strategies have become increasingly prevalent, with investors profiting by selling put options and covered call options, increasing stable options supply and suppressing volatility. Meanwhile, due to BTC's failure to break previous highs, demand for downside protection remained strong, and long put options continued to be used. Overall, the market is more focused on profit generation and risk management than betting on further gains.
The decrease in naked call option buying further confirms that options are being used less for directional upward exposure and more for systematic strategy execution. These dynamics collectively indicate that, compared to previous years...The options market will mature further and its user base will become more professional in 2025.
Part 3: Liquidity
Cryptocurrencies have historically been a channel for releasing excess risk appetite. Due to weak valuation anchors, embedded leverage, and high dependence on marginal cash flows, cryptocurrency prices are extremely sensitive to changes in the global financial environment. When liquidity is loose, risk tolerance increases, and capital naturally flows into the crypto sector; conversely, when the environment tightens, the lack of structural buying quickly becomes apparent. Therefore, cryptocurrencies have been, and will continue to be, fundamentally dependent on global liquidity.
In 2025, the macroeconomic environment will be a key driver of crypto prices. Despite the current backdrop featuring slowing interest rates, improved liquidity, and a strengthening economy—factors that typically support risk asset prices—the crypto market remains weak. We believe there are two key reasons behind this disconnect: retail investor attention and new liquidity channels.
Retail Investor Attention: Cryptocurrencies are no longer the “preferred” risk asset
“In 2025, cryptocurrencies have lost their status as the preferred risk asset for retail investors.”
Despite increased institutional participation, retail investors remain the cornerstone of the crypto market. A key reason for the poor market performance in 2025 was the diversification of retail investor attention and the diminished rotation effect of crypto assets as the preferred risk asset.
While numerous factors contributed, two stand out: technological advancements lowered market entry barriers, making other investment opportunities (especially in areas like AI) more accessible. These assets offered similar risk profiles, narratives, and return potential, thus diverting attention from the crypto sector. Simultaneously, we are experiencing a return to normalcy following 2024—a year of extremely high retail participation, initially concentrated in Memecoin and later shifting towards AI agents. A return to normal market activity is inevitable.
Therefore, retail investors favored equity themes such as AI, robotics, and quantum technology, while BTC, ETH, and most altcoins lagged behind among major risk assets. Cryptocurrencies are no longer the default outlet for excessive risk-taking.
Liquidity Channels: ETFs and DAT Emerge as New Pathways
"Today, ETFs and DAT, along with stablecoins, are becoming significant channels driving capital inflows into the crypto market."
BTC and ETH prices declined slightly, but the biggest relative weakness occurred in the altcoin sector. Besides weak retail participation, a key factor is the shift in how liquidity and capital enter the market.
Until two years ago, stablecoins and direct investment were the primary channels for capital entering the crypto market. However, ETFs and DAT have structurally altered the pathways through which liquidity is injected into the ecosystem.
Earlier this year, we summarized crypto liquidity into three core pillars: stablecoins, ETFs, and DAT. Together, they constitute the main channels for capital inflows into the crypto market.
Stablecoins have emerged as one of many entry points: they remain crucial for settlement and collateralization, but now they share the role of capital entry point, rather than dominating it.
ETFs direct liquidity to the top two assets: inflows of funds constrained by investment scope enhance the depth and resilience of major assets, but have limited spillover effects beyond BTC and ETH.
DAT introduced stable and non-cyclical demand: treasury allocation further reinforced the concentration on major assets, failing to naturally expand risk appetite while absorbing liquidity.
Liquidity isn't solely flowing in through ETFs and DAT, but the chart above illustrates how significant these channels have become. As mentioned earlier, their investment scope is expanding, beginning to allow exposure beyond BTC and ETH, primarily involving other blue-chip tokens. However, this process is gradual, so the benefits to the altcoin market will take time to materialize.
In 2025, cryptocurrencies were no longer driven by broad market cycles. Instead, rallies were limited to a few assets with concentrated liquidity, while the majority of the market underperformed. Looking ahead to 2026, market performance will depend on whether liquidity spreads to more tokens or continues to concentrate on a few large tokens.
2026 Market Outlook: Saying Goodbye to the Pure Cyclical Model
"The market failed to deliver the expected rally in 2025, but this may mark the beginning of a transition for cryptocurrencies from a speculative asset to a more mature asset class."
The market performance in 2025 demonstrates that the traditional four-year cycle model is gradually losing its effectiveness. Our observations suggest that market performance is no longer driven by a self-fulfilling four-year narrative, but rather by liquidity flows and investor focus.
Historically, the native wealth of cryptocurrencies functioned as a single, fungible pool of funds, with Bitcoin's returns naturally spilling over to mainstream coins and then to altcoins. Wintermute OTC data shows that this transmission effect has significantly weakened. New capital instruments—especially ETFs and DAT—have evolved into "closed ecosystems." While they provide sustained demand for a few blue-chip assets, funds do not naturally rotate to the broader market. 2025 became an extremely concentrated year as retail investor interest shifted dramatically to stocks and prediction markets—a few mainstream assets absorbed the vast majority of new funds, while the rest of the market struggled to sustain sustained growth.
Three Possible Paths for 2026
2025 was a year of significantly narrowed market breadth. As mentioned earlier, the average duration of altcoin rallies shortened from approximately 60 days last year to about 20 days. Only a select few tokens performed exceptionally well, while the broader market continued its downward trend due to unlocking selling pressure.
To reverse this trend, at least one of the following three conditions needs to occur:
ETFs and DATs Expand Investment Scope: Currently, most new liquidity is still limited to institutional channels such as ETFs and DATs. A broader market recovery requires these institutions to expand their investment scope. Preliminary signs are already emerging, with more ETF applications for SOL and XRP being submitted.Major cryptocurrencies leading the market: A strong surge in Bitcoin (and/or ETH) similar to that of 2024 could generate a wealth effect that spills over into a wider market. However, the extent to which funds will ultimately flow back into the digital asset sector remains to be seen.
Market focus returning: Another less likely scenario is that retail investors' attention will significantly shift from the stock market (including themes like AI and rare earths) back to the crypto space, leading to new capital inflows and stablecoin issuance.
The market trajectory in 2026 will depend on whether at least one of the aforementioned catalysts effectively drives liquidity beyond a few major assets; otherwise...
